Buying vs. Leasing by Equifax
Although both choices result in you driving away in the car of your choice, the
process involved with buying and leasing are quite different. There are definite
advantages to both. But before deciding which makes the most sense for you,
there are several things to consider.
The popularity of leasing increased through the 1990s as the cost of new cars
skyrocketed. That's because it costs substantially less to walk away with a
late-model vehicle lease than a purchase. Today, leasing accounts for about one
third of all new vehicle deals.
Points to Consider
How long do you plan to keep the car? The longer you plan to
keep your vehicle, the more it makes sense to buy. If you buy your vehicle and
keep it until after the loan is paid off, you will benefit from full equity and
lowered monthly expenses.
How many miles do you drive a year? If you drive more than
12,000 miles a year, you should consider buying. When you buy, you can drive as
much as you like with no penalties. But if you lease and go over the preset
mileage limit, you may be subject to steep penalties of up to 25 cents a mile.
Also, some lease agreements may charge you for excess wear and tear when you
turn your car in -- regardless of how many miles you've driven.
Do you want to customize your car? If you own your vehicle, you
can change its appearance in any way any time after you drive it off the lot --
this includes paint jobs, customization, even installing a stereo system. When
you lease, none of these changes are permitted.
To Lease or Not to Lease?
Leasing offers low or even no down payment and lower monthly payments (because
you aren't paying for the value of the whole vehicle, just the depreciated
portion). These lower monthly payments allow you to lease a more expensive car
than you could afford otherwise. An added bonus is that you pay less sales tax
when you lease because you are only taxed on the years you use the vehicle.
One of the downsides is the fact that once you start leasing, you can count on
monthly payments until you get off the leasing merry-go-round. You will not see
the benefits of earning any equity in your vehicle as you would if you
purchased. Also, if for any reason you need to get out of your lease before its
term expires, you will likely have to pay substantial early termination fees or
penalties -- sometimes thousands of dollars.
The Final Analysis
You should consider leasing if you don't have a lot of money for up-front costs,
if you don't plan to drive long distances, and if you plan to get a new vehicle
in two or three years anyway.
On the other hand, if you want to keep the vehicle for as long, or as short, as
you'd like, and you want to maintain or customize it in your own way, buying
makes sense.
Whether you buy or lease, it is important to know how lenders and leasing
companies view you. Score Power® provides you with your Equifax
Credit Report™ and your FICO® credit score, the score used by more creditors
than any other to judge you as a credit risk.
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